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Oil Matters: Real Input Prices and U.S. Unemployment Revisited

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  • Andreopoulos Spyros

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    (Morgan Stanley & Co.)

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    Abstract

    Motivated by structural instability in the energy price – macroeconomy nexus, this paper revisits Granger causality between unemployment and real input prices, the real prices of energy (crude oil) and capital (real interest rate). Time varying Granger causality is investigated through application of the Markov Switching Vector Autoregression of Psaradakis, Ravn, and Sola [Journal of Applied Econometrics, 20(5), 665-683 (2005)]. The results show that the real price of oil helps forecast unemployment in recessions only, while the real interest rate does so exclusively in expansions. This finding is consistent with the hypothesis that oil prices have asymmetric effects on the economy. A further result is that oil, but not the real rate, is economically significant for unemployment in the long run solution of the model.

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    Bibliographic Info

    Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

    Volume (Year): 9 (2009)
    Issue (Month): 1 (March)
    Pages: 1-31

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    Handle: RePEc:bpj:bejmac:v:9:y:2009:i:1:n:9

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    Cited by:
    1. Dogrul, H. Günsel & Soytas, Ugur, 2010. "Relationship between oil prices, interest rate, and unemployment: Evidence from an emerging market," Energy Economics, Elsevier, vol. 32(6), pages 1523-1528, November.
    2. Alom, Fardous, 2011. "Economic Effects of Oil and Food Price Shocks in Asia and Pacific Countries: An Application of SVAR Model," 2011 Conference, August 25-26, 2011, Nelson, New Zealand 115346, New Zealand Agricultural and Resource Economics Society.

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